This former Google exec’s startup lends money based on your school, SAT score, and job history — and a star Wall Street investor’s betting on it

Traditional banks require years of credit and employment history
from anyone looking to borrow money from them. So if you’re young
and don’t have much credit experience, you’re probably going to
have a hard time getting personal bank loans.

But Dave Girouard, CEO of the online-lending startup Upstart and
former leader of Google Enterprise, thinks the current
credit system is flawed. He believes young people, millennials
particularly, need a better vetting process that can predict
their creditworthiness years in advance, even if they don’t have
much experience with credit now.

His startup, Upstart, run by a bunch of former Google data
scientists, aims to do just that.

Unlike traditional banks that mostly rely on FICO score and
credit history, Upstart goes through a variety of “signals,” such
as the school you went to, GPA, standardized test scores, and the
quality of employer, to quantify the borrowers’ ability to pay
back loans. Based on that score, Upstart connects borrowers with
investors on its platform.

“What [Upstart] has done here is identifying ‘future prime
borrowers,’” Girouard told Business Insider. “Our modeling is
really focused on not what you did in the past, but what’s likely
to happen to you in the future. These are people that are going
to be doing great things, earning a lot of money, becoming wealth
creators over time.”

But that doesn’t mean only the Ph.D.s and Ivy League grads will
get priority on Upstart. A literature major from Harvard may not
necessarily get a better score than someone with a professional
job, like nursing.

“Nurses are not the highest earners in the world, but they’re
also predictably employed because there’s always a need for them.
So what that implies is whatever school you went to, if you had a
nursing degree, you may get a pretty good loan on our platform,”
Girouard said.

A pivot that worked

Upstart was founded in 2012 with the idea of connecting young
entrepreneurs with investors. But last year, it pivoted to the
current online-lending platform after realizing its
future-looking analytics would be better used in the
personal-loan market.

The decision to pivot seems to be paying off so far. It’s issued
more than 8,700 loans worth a total of $125 million in the past
year, with about $20 million coming in June alone. Considering it
targets millennials between the ages of 22 and 34, and most
loans are below $35,000, it’s not a bad growth rate.

And investors are buying into Upstart’s concept too. On Thursday,
it announced a $35 million series C round led by Third Point
Ventures, the Wall Street firm founded by Dan Loeb, who’s best
known for hiring Marissa Mayer as Yahoo’s CEO when he was on its
board.

Other investors include Khosla Ventures, First Round Capital, and
Collaborative Fund, as well as Google’s executive chairman Eric
Schmidt and Salesforce CEO Marc Benioff.

For all its potential upside, however, Upstart is in one of the
most competitive markets. Online lending has created some of the
most valuable startups, including Lending Club, which went public
last year, and Prosper, which is now valued at roughly $1.9
billion. There are other online-payment services that mostly
target millennials, like Affirm and Digit.

But Girouard doesn’t believe this is a zero-sum game. He sees
Upstart’s technology as good enough to make it stand out in
a crowded market. Down the road, he wants to expand into other
areas, such as mortgages, once he locks down the current users
as loyal customers.

“We’re really doing something to differentiate,” he said. “People
in their 20s and 30s don’t generally get the quality of credit,
the low price of credit that you would get if you were more like
40 or 50. And we really think there’s a way to use data science
to fix that.”